3 Reasons Why Zhou Yongkang's Arrest Is Good For China

On Tuesday, China announced that Zhou Yongkang is being investigated for corruption.

Zhou is a former member of the Politburo Standing Committee (PSC) and former security chief.

This has been the biggest takedown of a Chinese official in thirty years, according to Bill Bishop, author of Sinocism. But Bank of America's Ting Lu thinks Zhou could be the most senior politician to be investigated for corruption since the Communist Party came to power 1949.

Moreover, the 4th plenary session of the 18th CPC Central Committee which will be held in October, will make "ruling the country by law" its main theme.

The third plenum last year, disappointed markets a bit when it was revealed that the anti-graft campaign would be Beijing's top priority, according to Bank of America's Ting Lu.

"With some high profile arrests under its belt, we believe the focus of the new government can start to shift from the anti-graft campaign to real institutional reforms, which are badly needed for China’s long-term economic health," he writes. "...We are especially encouraged by the fact that it is the first time that the CPC has listed rule of law as the key theme of the CPC Central Committee meeting."

Here are the three reasons all of this is a positive for sentiment on China:

1. "It implies that the new government led by Mr.Xi has made significant progress in power consolidation, which could be positive for the Chinese economy and financial markets."2. "It reignites hope for badly needed reforms."3. "In the near term, it should mean the new government can finally focus on economic matters."

In the near-term, China's corruption crackdown has weighed on growth. But after getting off to a shaky start this year, China's GDP grew 7.5% in the second quarter, as growth again became Beijing's top priority.

Ting argues that China's new leadership has demonstrated they have the political will to achieve their vision for "market-oriented reforms," and this is good for the economy in the long run.

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